1. The Merger of Tata Tea &
Tetley
Presented By:
Group 3
2. Tata Tea - Tetley
• The first ever leveraged buy-out (LBO), largest cross-border
acquisition by any Indian company
• Tata Tea's strategy of pushing for aggressive growth and
worldwide expansion.
• The acquisition of Tetley made Tata Tea the second biggest
tea company in the world with the expected combined
turnover worth Rs. 2,800 – 2,900 crore. (The first being
Unilever, owner of Brooke Bond and Lipton).
3. Industry Profile
• India is one of the largest producer and consumer of tea in the world,
accounting for around 23% of world demand
• Tea is currently the second biggest in beverage category after the
carbonated soft drink market
• Total turnover of package tea was approximately Rs 10,000 crores in
2009-10
• In the packaged tea category, the unorganized sector accounted for
over Rs 1500 crore
• The labor intensive tea industry directly employs over 1.1 million
workers and generates income for another 10 million people
approximately. Women constitute 50% of the workforce.
5. Tata Tea
• TATA Tea was set up in 1964 as a joint venture with a UK based
James Finlay and Company to develop value added tea.
• The operations of Tata tea and its subsidiaries focus on branded
product offerings in tea but with a significant presence in plantation
activity in India and Sri Lanka.
• The Tata tea brand leads market share in terms of value and volume
in India and has been accorded the ‘super brand' recognition in the
country.
• Tata tea also has 100% export oriented unit manufacturing instant
tea in the state of Kerela, which is the largest such facility outside
the United States.
6. Tetley
• In 1837, two brothers, Edwards and Joseph Tetley started to sell tea and
became so famous that they set up as tea merchants.
• In 1856, in partnership with Joseph Ackland, they set up “Joseph Tetley
and Co., wholesale tea dealers”. Tea was rationed during World War II, it
was not until 1953, just after rationing finished, that Tetley launched the
tea bag to the UK and it was an immediate success. The rest, as they say, is
history.
• The Tetley Group was created in July 1995, when a group of investors
bought what was then the world-wide beverage business from Allied
Domecq.
• On 10th March 2000, The Tetley Group was sold to Tata Tea Limited, one
of the world’s largest integrated tea businesses.
• After a long drawn out battle first with Schroder Ventures, followed by a
bitter retreat in 1995, and then with Sara Lee, Tata tea finally tasted victory
on March 10, 2000 when it bought Tetley for a staggering INR2,135 crore
( 305 million sterling)
7. Porter’s Five Force
Analysis
Threat of New Entrants Threat to New Entrants
•FDI •High Cost of Investment
•Untapped Rural Markets •High Labor Cost
•Unorganized Sector
Rivalry among Existing Players Threat from Substitutes
Bargaining power of •Approximately 700 Tea Companies •Coffee
Suppliers •Unorganized Players •Pepsi
•Large number of •Industry growth at 2% •Coke
producers •Energy Drinks
•Low switching cost
Bargaining power of Buyers
•Large number of buyers
•Product differentiation
•Other Options available
•Large number of consumers
8. PEST Analysis
Political factors Economical Socio – Cultural Technological factors
factors factors
• Government Policy Interest • Lifestyle Changes New Machinery
Rates Advertising through
• Foreign Laws • Language
Internet
• Stability of the
Government
9.
10. Structure of the Deal
Tata
Tata Tea Tea
Inc Raboban
k
60mn 215mn
10mn Tata Tea (Gr Britain) Prudential Schroder
SPV Mezzanin Ventures
e Capital
10mn
10mn
Equity 70mn Debt 235mn
Tetley Legal Services Tetley’s Working
Acquisition & Bank Capital requirements
Charges
271mn 25mn
9mn
11. DEBT Repayment Structure
A B C D
Amount 150 Million 75 Million 30 Million 50 Million
Loan Type Long Term Long Term Long Term Revolving
Purpose Funding Acquisition Funding CAPEX WC Requirements
Acquisition
Year of Maturity 2007 2007 2008 2007
Pay Back Method Semi Annual 2 Installments in 2 Installments in Cessation of
Installments 07-08 07-08 Credit
Interest rate 11% 11% 11% 11%
12. Before Merger
TATA TEA TETLEY
Turnover $207million $417 million
operating profit $36 million $42.6 million
Employees 59740 110
Tea Estates 54 0
Key Market India Britain, Canada, Australia, US
13. Merger Tata tea
Implications acquisition Tetley Pre acquisition Consolidated Post acquisition
40% of turnover Company has moved up the value
Position in the came from packed 100% turnover came chain 84% of turnover came from
value chain tea bags from packed tea bags packed tea bags
outsourced entire
requirement from 35 today 70% of TATA Tea requirement is
produced 95% of different countries with outsources from 20 different countries
its tea an estimated thus reducing the risk associated with
Increased requirements in procurement of 3 million fluctuations in production arising out of
outsourcing house kgs of tea every week various factors.
Margins highly
Predictable correlated with tea Margins inversely
margins cycle correlated to tea cycle Margins hedged
Domestic UK and USA account for
Global footprint operations bulk sales Global presence
14. IFAS Before Merger
Strengths Weights Rating Weighted Score
Plantation 0.16 4 0.64
Brand Name 0.15 2 0.30
Strong Management 0.15 3 0.45
Weakness
Weak Distribution Channel 0.18 3 0.54
Lack of Technology available 0.16 3 0.48
Less or No Global Presence 0.20 2 0.40
Total 1 2.81
15. IFAS After Merger
Strengths Weights Rating Weighted Score
Market Leader 0.15 4 0.60
Resources & Capabilities 0.13 3 0.36
Brand Name 0.12 3 0.36
Experience 0.11 3 0.33
Strong Management 14 3 0.42
Presence in 40 Countries 0.15 4 0.60
Weakness
No Product differentiation 0.15 4 0.60
Distribution Network 0.05 3 0.15
Total 1 3.42
